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U.S. pot revolution gathers force as states blunt their war on drugs

Kayvan Khalatbari, 30, is part owner of the Denver Relief medical and retail marijuana outlet. A pot smoker since he was a teenager, Khalatbari became an activist dressing up in a chicken suit at Denver city hall, taunting the mayor not to be such a chicken about legalization.

WASHINGTON – Elliott Klug is not a criminal. But he sure acts like one.

His pockets bulge with cash. He pays off his suppliers and employees with rolls of small, well-circulated bills. And once a month, he stuffs two hockey bags with about $20,000 each and heads off to pay the sales taxes he owes the City of Denver and state of Colorado on his marijuana sales.

“It’s kind of dangerous,” he says, referring to the trip to the treasury. “But those of us who have been interested in legalizing cannabis have been in the scary business for a long time. It’s part of the process.”

Hold it. Play that back. You say he pays taxes? And with cash? Why?

Klug, 36, is part owner of Pink House Blooms in downtown Denver. It’s one of Colorado’s 494 medical marijuana outlets and is soon to join the state’s list of 147 retail stores that, since Jan. 1, have been licensed to expand into the more lucrative recreational pot business.

He has never considered himself a drug trafficker. Like so many of Colorado’s legit pot dealers, his roots are in activism. Years living the life, smoking pot, selling it and working to persuade the state to legalize a substance he believes is beneficial to mankind, have finally paid off. When Colorado legalized medical cannabis in 2000, he jumped in and became a “caregiver,” selling to “patients.” Now he is expanding into recreational pot sales. Campaign over. Down to business. There’s money to be made.

But not without a few bumps.

While his monthly trips to the government tax offices symbolize the stunning shift in Americans’ social and political attitudes towards cannabis, they also reflect the limbo in which the legalization movement finds itself.

Bankers, for instance, face mixed messages. An August 2013 Justice Department memo made clear that despite legalization in some states, the U.S. Congress still regards pot as a “dangerous drug” whose production and sale is a “serious crime.” Those who help move the money – such as banks – become complicit money launderers. Yet at the same time, the memo promised that the feds would not prosecute companies operating under state marijuana regulations designed to protect children and to deter organized crime.

Klug is a caricature of this American ambivalence. But he’s in good company. U.S. President Barack Obama freely admits to smoking pot when he was young, considers it less dangerous than alcohol, and told The New Yorker magazine recently that “it’s important” for legalization in Colorado and Washington to move forward. Yet he expressed concern about the “slippery slope” to stronger drugs and appeared opposed to legalization on a federal level.

Still, the country that for decades led the world in a war on drugs, often punishing countries that didn’t follow its draconian enforcement policies, is now leading in the opposite direction. The war on drugs is seen as a failure and the cannabis business is beginning to bloom over its grave. Grassroots activism is pushing the U.S. into a new era of tolerance.

The payoff is big. Colorado estimates it earned about $1.8 million U.S. in taxes in the first week of retail sales and predicts at least $70 million U.S. in tax revenue this year. Consider the additional savings in law enforcement and prosecutions (the U.S. arrests one pot smoker every 37 seconds, according to FBI statistics) plus the steep annual licence fees, and it is no wonder 14 other states, plus Washington, D.C., are contemplating similar legalization laws.

Yet banks remain skittish, which is why Klug and most other pot dealers can’t accept credit cards or cheques, can’t make deposits, can’t even have personal bank accounts with this money and have to pay suppliers, employees and the tax man in cash.

While it cramps their claim to legitimacy, the real irony is that as soon as Klug hands over his cash to the Colorado tax office, the banks sweep in with armoured trucks and haul it off to be deposited in state accounts.

So far, however, banking problems have not stopped this budding revolution, which polls show a majority of Americans support.

After opening its retail business Jan. 1, Denver-based Medicine Man, Colorado’s largest pot retailer, had lineups for several days.

“It was pretty insane,” Elan Nelson, the company’s director of business strategy and development, said.

Peter and Andy Williams started Medicine Man in 2009 with a $150,000 loan from their mother Michelle Zeman, 67, who is now a part owner.

Michelle Zeman, 67, bankrolled her sons’ marijuana business, Denver Relief, with a $150,000 startup cheque and then invested about $600,000. Now she’s part owner, She has never smoked pot. “I like to be in the here and now,” she says.

Michelle said she was “really surprise” at her sons’ business plan. “I hardly knew what marijuana was,” she said. “I had never used it. But it really sounded very logical and we decided we’d help them.”

It became a family business. Michelle found herself trimming plants, planting seeds, changing soil, bagging and selling. “Now I just come down about three or four times a week and count the money,” she said.

The company quickly doubled in size and bought its own retail and production building, cultivating 2,200 plants on a seven-day harvest rotation. Nelson predicts the retail business will boost that number to 3,200 and just about double the number of employees to 70.

With a base price for medical pot at $25 U.S. for the standard buy of an eighth of an ounce, and twice that for recreational sales, Medicine Man is raking in several million dollars a year and expects to triple that as the retail business takes off.

As an emerging industry, companies such as Pink House and Denver Relief are taking their expertise in setting up viable marijuana businesses global.

Klug, who is married with three small children and remains a “strong pot smoker,” started a design and build firm that will supply turnkey – basically, ready-made – marijuana production facilities and stores. “It’s working really well,” he said.

Kayvan Khalatbari, 30, part owner of pot dispenser Denver Relief, also runs a consulting company with clients in 12 U.S. states, three provinces in Canada and in the United Kingdom.

He said his company is advising clients in Toronto, Montreal and Vancouver on how to set up a regulated medical marijuana business.

Ironically, as the U.S. relaxes its pot laws, Canada’s Conservative government has increased penalties for production and possession insofar as these relate to trafficking and organized crime. It also recently prohibited users of medical marijuana from growing their own individual plants; this must now be done by approved commercial facilities.

“Canada is kind of going backwards because it has really been ‘legal’ in Canada but the provinces are not following up with regulations,” Khalatbari said. “It needs to start afresh.”

wmarsden@postmedia.com

Twitter.com/marsdenw

U.S. states that legalized medical marijuana, by year

1996: California

1998: Alaska, Oregon, Washington

1999: Maine

2000: Colorado, Hawaii, Nevada

2004: Montana, Vermont

2006: Rhode Island

2007: New Mexico

2008: Michigan

2010: Arizona, Washington, D.C., New Jersey

2011: Delaware

2012: Connecticut, Massachusetts

2013: New Hampshire, Illinois

States that have legalized marijuana for both medical and recreational use: